Whether or Not it's the Weather

Wall Street and Washington have summarily dismissed the recent spate of disappointing
economic data by claiming it is solely based upon the weather. The equity market
is 100% convinced that winter is to blame for the faltering economy; and that
even if stocks have it all wrong, Ms. Yellen and co. will immediately print
enough money to make everything ok.

For example, Industrial Production fell 0.3% and Retail Sales dropped 0.4%
in January. Also, the last two Non-Farm Payroll reports came in far below estimates,
and there were just 113k net new jobs created last month. Especially interesting
in this latest report was that 48k construction jobs were added in January.
This is totally contradictory to the claims that the anemic employment growth
was caused by bad weather.

In addition, December Durable Goods contracted 4.3%, while the housing market
is also showing signs of weakness. The Index of Pending Home Sales dropped
8.7%--to over a two-year low--while Home Builder Sentiment in February posted
its largest drop in history. Maybe that explains why Housing Starts fell 16%
in January to the lowest level since September, which was also the largest
drop since February 2011. Staying on housing, Existing Home sales dropped 5.1%
in January, hitting their lowest levels since July 2012. Don't look for the
weather as an explanation here either; sales in the West dropped 7.3% where
there wasn't even a drop of precipitation.

Colder than normal weather may account for some of the decline in U.S. GDP.
However, it cannot explain the problems currently being experienced in economies
all over the globe.

Japan's GDP fell to a 1% growth rate in Q4; a far cry from the 3% predicted
by most economists. The trade deficit hit a record 11.5 trillion Yen for 2013,
nearly twice the level of 2012. This is despite (or perhaps because of) the
BOJ printing its currency at a 70 trillion Yen annual pace.

China's economic data shows that not only has the economy slowed from its
prior double-digit pace, but news out from the National Bureau of Statistics
showed the official Non-manufacturing Purchasing Managers' Index fell to 53.4
in January, from 54.6 in December. That reading is the lowest since December
2008.

The economy in Turkey is emblematic of the turmoil in emerging markets. A
tumbling currency, soaring interest rates and a plunging stock market are sending
the country into chaos. The Borsa Istanbul 100 Index is down 30% since its
peak on May 22 of 2013. It just so happens that the fist mention of the Fed's
taper of asset purchases also occurred on May 22nd during Mr. Bernanke's testimony
before Congress -- far before any snowflakes started to fall.

It may come as a shock to main stream economists that it is cold and snowy
in the North-Eastern United States during the December-February time frame.
However, worse than expected winter weather in certain parts of the U.S. cannot
adequately account for stumbling GDP across the developed world and crumbling
securities in emerging markets.

The truth is that global economies are being whipsawed between inflation and
deflation, as central banks and governments have created massive debt and asset
bubbles. Then, once the stimulus begins to be removed, those bubbles burst.
These same governments attempt to re-inflate the same bubbles by monetizing
an ever-increasing amount of government debt, causing the asset bubbles to
become more pronounced with each cycle.

The resulting instability is causing dizzying swings in most markets and economies.
Therefore, it is not the meteorological storm that is to blame for slowing
global growth, but rather the destructive forces that result from the clash
between the intensifying forces of inflation and deflation. The historic magnitude
of these boom and bust cycles are directly caused by the unprecedented manipulation
of markets by world governments.

Growth in the U.S. is slowing, along with Asia and Emerging market economies.
This is occurring under the context of a continued reduction of Fed asset purchases.
Meanwhile, U.S. market strategist are busy looking at the weather charts trying
to find excuses. Nevertheless, look for the instability in global currencies,
markets, interest rates and economies to worsen as the Fed's taper progresses.

PPS is a Registered Investment Advisory Firm that provides money management
services and research for individual and institutional clients.

Michael is a well-established specialist in markets and economics and a regular
guest on CNBC, CNN, Bloomberg, FOX Business News and other international media
outlets. His market analysis can also be read in most major financial publications,
including the Wall Street Journal. He also acts as a Financial Columnist for
Forbes, Contributor to thestreet.com and is a blogger at the Huffington Post.

Prior to starting PPS, Michael served as a senior economist and vice president
of the managed products division of Euro Pacific Capital. There, he also led
an external sales division that marketed their managed products to outside
broker-dealers and registered investment advisors.

Additionally, Michael has worked at an investment advisory firm where he helped
create ETFs and UITs that were sold throughout Wall Street. Earlier in his
career he spent two years on the floor of the New York Stock Exchange. He has
carried series 7, 63, 65, 55 and Life and Health Insurance Licenses. Michael
Pento graduated from Rowan University in 1991.